Sept. 23, 2014 10 a.m.

Service Sector Strengthening Continued in September; Pace of Employment Slowed Slightly

Overview

Fifth District service sector activity expanded in September, according to the latest survey by the Federal Reserve Bank of Richmond. Retail sales were robust, with heavy shopper traffic and moderate big-ticket sales. Retail inventories increased at a faster pace than a month ago. Non-retail services firms' revenues grew moderately. Survey respondents had moderate expectations for business prospects for the six months ahead.

Employment in the broad service sector increased at a slightly slower pace this month, while average wages rose moderately.

Annualized price growth in September was little changed from a month earlier for the overall service sector. Survey participants anticipated prices would rise at a slightly faster rate over the next six months.

Service Sector

Service sector revenues continued to grow at a healthy pace in September, keeping the index at 21 for a second month. Employment advanced at a slightly slower pace than a month ago, cooling the index by four points to 13. Average wages rose, with the index tacking on a point to end the survey period at a reading of 13. Survey participants were confident about business conditions for the coming six months, albeit somewhat less upbeat than a month ago. The index for expected demand settled five points lower in September, at a reading of 22.

Retail Firms

Retail sales growth remained robust in September, with the index maintaining last month's reading of 37. Big-ticket sales slowed this month, moving the index to 19 from the previous reading of 28. Shopper traffic was heavy, with the index ending at a solid 43 following last month's reading of 48. Inventories rose more quickly, pushing that gauge to 32 from 23. Retailers were positive, although somewhat less enthusiastic, about demand for their goods during the next six months. The index lost six points from the August reading to finish at 30 this month.

Retail hiring remained strong, with the index remaining at 21 in September. Average retail wages climbed sharply, with that indicator jumping 12 points this month to a reading of 20.

Services Firms

Revenues at non-retail services firms increased at a moderate pace in September, with the index matching last month's reading of 18. Employment increased more slowly at services providing firms, compared to a month ago. The index for the number of employees settled four points lower at 12. Average wages in this sub-sector grew nearly on pace with a month ago; the index finished a point lower at 12.

Services providers looked for good business prospects in the six months ahead, although their outlook was slightly less upbeat than in August. The indicator slipped four points to settle at 21 this month.

Prices

Prices in the service sector rose at an annualized 1.58 percent rate in September, little changed from August's 1.54 percent pace. Retail price growth slowed to a 1.98 percent rate compared to a 2.32 percent rise in August. Price change at non-retail services firms edged up mildly to an annualized 1.50 percent rate; price growth in that sub-sector was at a 1.43 percent pace last month.

Expectations for prices in the six months ahead were for slightly faster increases compared to the current pace of price growth. Survey respondents looked for a 1.89 percent annualized rate of growth in the broad service sector, following last month's outlook for a 2.00 percent rate of increase. Within the broad service sector, retailers anticipated prices would rise at a 1.96 percent rate and non-retail services providers expected 1.88 percent annualized price growth. Last month, retail merchants looked for future price growth of 2.29 percent, while non-retail services providers anticipated price growth of 1.96 percent during the next six months.